China’s Antitrust Law Doesn’t Seem to Apply to Internet Giants

Does Tencent have a monopoly on China’s instant messaging market? You might think so. It has nearly 1.2 billion monthly active users, the same company owns QQ, with more than 800 million users. It’s hardly possible to live in Chinese cities without using WeChat to make contact, pay bills, and recently, pass health checkpoints.

But a recent attempt to prove that Tencent is a monopoly in a Chinese court collapsed in January, according to court files made public on April 17.

The failed attempt indicates how limited China’s current antitrust law has been applied to internet firms. The lack of antitrust enforcement in the digital world has also given internet giants the implicit nod to abuse their market power to crack down against competitors, said experts.

A Tencent suit

Zhang Zhengxin, a lawyer at Beijing-based Yingke Law Firm, sued Tencent a year ago for banning WeChat users from accessing links to Taobao, an online marketplace owned by e-commerce giant Alibaba.

Attempts to access Taobao links on WeChat will yield a warning page that asks users to copy “relative links”—links that users tend to visit—to their browsers, even though WeChat provides an in-app browser that allows users to access the web.

The Beijing Intellectual Property Court held a hearing on the suit in December, in which the two sides fell into a standoff around whether WeChat is a market monopoly.

Zhang accused Tencent of “effectively turning down his transaction request” because of WeChat’s Taobao ban and cited China’s Anti-monopoly Law, which bans such behavior. However, the clause only applies to a company when it “enjoys a dominant market position.”

The 2008 law has outlined how to define a company as having such a dominant market position. However, the law came into effect before the internet became a big thing in China and, so far, there were no internet companies in the country that have been identified as a market monopoly.

A recently proposed revision to the antitrust law could give law enforcement agencies and market regulators a better legal basis to take action. The experts we talked to, however, doubt whether regulators really want to rein in the country’s booming internet industry.

Is Tencent a monopoly?

Zhang, representing himself, filed the lawsuit against Tencent last April over WeChat’s blockage of links to Taobao and Bytedance’s short video app Douyin, known as TikTok in overseas markets, citing the country’s Anti-monopoly Law. He claimed in an indictment to the court that by blocking those links, Tencent is “effectively turning down his transaction request” and that such behavior is banned by the Anti-monopoly Law.

One of the focuses of the hearing in court is whether Tencent is a monopoly in the so-called “instant messaging (IM) service market,” according to court files recently made public.

Zhang claimed that Tencent’s WeChat holds a dominant position in China’s IM market since its market share by user base and usage is far more than 50%. As a matter of fact, the share could be much bigger. According to a report (in Chinese) by Qianzhan Industry Research Institute, nearly 93% of Chinese mobile IM users have installed WeChat in 2018.

Tencent, however, argued that it doesn’t hold a dominant position in the IM market because there is no such market due to the dynamic characteristics of the internet.

The company claimed that the relative market in which a company is deemed to be a monopoly should be inferred from users’ specific demands. Zhang’s demand was to share links of Taobao to other users, so any products that could fulfill such a function should be included in the “relative market,” the company said during the December hearing.

A Tencent representative declined to comment on the case when contacted by TechNode.

A relative definition

China’s current Anti-monopoly Law said companies with more than 50% share of the “relative market” can be presumed to be dominant players. It also requires law enforcement agencies to consider factors of their abilities to control the supply chain and the market access threshold of competitors.

While in cyberspace, the definition of a “relative market” can be vague—Tencent’s argument is proof of how nebulous they can get. Legal experts have long criticized (in Chinese) the law because it was designed to regulate companies in traditional industries: it hardly took the internet, a more and more important sector to the country’s economy, into consideration.

In January, China’s State Administration for Market Regulation (SAMR), the country’s top antitrust regulator, announced a draft revision of the Anti-monopoly Law, which expanded the definition of what forms a dominant position.

When delimiting whether internet companies enjoy dominant market positions, law enforcement agencies should also take factors such as network effect as well as their scale and ability to deal with data into consideration, said the proposed amendment.

Nevertheless, some have questioned whether the proposed overhaul would really change China’s antitrust enforcement.

Still might not be enough

China’s current legal framework is enough for antitrust authorities to take action against internet companies, but the authorities are just being very cautious because they may be afraid of getting it wrong in what are mostly very dynamic and fast-moving markets, said Adrian Emch, a partner at law firm Hogan Lovells in Beijing.

If China’s market regulators were to decide to carry out more aggressive enforcement against internet companies, then it could be undertaken within the existing legal framework, Emch wrote in a paper published in December.

As a matter of fact, before it proposed revisions to the antitrust law, the SAMR already tried to curb internet companies over potential antitrust violations.

The agency launched in January 2019 what is known as China’s first “internet antitrust investigation” into Tencent Music Entertainment’s dealings with the world’s three largest record labels after rivals complained that Tencent paid excessive fees for the initial rights and then passed those costs along to competitors.

Observers were cheered (in Chinese) that the investigation would open a new era where internet companies also fall into the rule of China’s antitrust law.

However, the SAMR decided to suspend the probe in January, according to Bloomberg. The regulator didn’t disclose how far the investigation went and why it was terminated, but it came after Tencent Music reached a music licensing deal with Bytedance in late 2019.

“If you look at the market, there are many large and competitive internet players in China, so the antitrust authorities may ask themselves how much intervention, if any, is really necessary,” Emch told TechNode in an interview.

“Antitrust enforcement doesn’t take place in a vacuum, but is done against a specific legal and factual background. In China the background is different from, say, Europe where most of the main players in the internet industry are US companies.  In China, the largest internet players are domestic players and the local regulatory and policy framework is different from Europe.”

Zhang said the overhaul of the Anti-monopoly Law is a “cheering step” made by regulators.

“I believe [the revision] will give market regulators a greater legal basis to launch antitrust probes into internet companies and curb their ‘unfair competition’ including blocking links of competitors,” he said.

His challenge to Tencent, however, didn’t see the proposed revision becomes effective.

Case not closed

He applied to the Beijing Intellectual Property Court in January to withdraw the case, according to a court file released on April 17 on a website (in Chinese) maintained by the country’s Supreme People’s Court.

He told TechNode after the court file was released that he dropped the case because he “felt there was a lack of evidence.”

While Zhang refused to give more details on the lawsuit, he told TechNode in an interview on April 9 that China’s current antitrust legal framework has done little to reach its power to the internet sector.

It looks like internet firms are immune to China’s antitrust law, he said.


– This article originally appeared on TechNode.